RBI rate cut to boost home buyers sentiments: Colliers International India

The move will lead to reduction of lending rate by banks, leading to lower EMI for housing, car loans and corporate borrowers. Banks are yet to act upon this rate cut.

Oct 06, 2016 09:10 IST India Infoline News Service

In the first monetary policy review under RBI Governor, Urjit Patel, the interest rate was reduced by 25 basis points to a six-year low of 6.25 per cent in a unanimous decision by the new rate-setting Monetary Policy Committee (MPC) panel.

The cut, first in the last six months, came amidst a big clamour for easing rates. Consequently, the reverse repo rate has also come down by a similar percentage point to 5.75 per cent. The move will lead to reduction of lending rate by banks leading to lower EMI for housing, car loans and corporate borrowers. Banks are yet to act upon this rate cut.

Contrary to general expectations, the RBI rate cut has come as a surprise for most of the economists. The latest RBI move shall boost the overall liquidity and positively influence the borrowing environment, as the move will lead to further rate cut by banks on lending as well as deposit rates.

Home sales have experienced a downward trend and high number of unsold inventory has become the real estate industry norm. Buyers are hesitating from investing despite the fact that there is a shortage of about 29 million houses in India. Buyers’ sentiment in the last two years has been at an all-time low due to many reasons, but primarily due to delay in delivery of projects, quality-related issues, escalated prices, and availability of limited recourse for a real estate consumer in case of conflicts with the developer.



Apart from escalating prices, market sentiments are playing a big role in lower residential sales. With the festive season round the corner, lowered rates will surely lead to an improved sentiment among homebuyers encouraging residential sales.

“While the impact on the residential sector as a whole remains to be seen, there will definitely be a positive impact on the sentiment of the customers and that combined with the festive season and pent up demand from real end users could increase sales this quarter. Key is to have the right product at the right prices for each micro market” says Saacketh Chawla, Deputy Managing Director, Colliers International India.

"This is definitely a positive move in the right direction and will have a positive impact on the residential sector, however we must wait and watch to see how much the banks actually pass on to the customer," added Sumit Jain, National Director, Residential Services at Colliers International India.

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